And this is how you go about trying to shut down Bitcoin. You make life incredibly difficult for any site that blends "traditional" currencies with bitcoin (so the exchanges). If you've limited it to a local barter currency and small scale internet payment system, it's much less threatening.

Time for P2P exchanges. Too much power right now is centralized in the handful of primary exchanges, and they're very tempting targets.

Enter the problem with Bitcoin. It's not real, it's not backed by any government or police force, and it can't be recouped through charge backs.

It's only useful, as a currency, for criminals among criminals.

It's real enough as a digital commodity.

The "not backed by a gun" is a design feature, not a flaw. Gold as a mechanism of trade was never "backed by any government or police force," and if your method of voluntary exchange requires the threat of a gun to be used, it's not so voluntary.

And the "no chargebacks" is, again, a feature, not a flaw. I'm assuming you haven't worked any with the credit card industry on the merchant side. It's a giant pain for them, and a huge expense to the industry at a number of levels.

Further, for international exchange of value (for perfectly legitimate reasons), it's hard to beat. Hell, for exchange of value across the country, it's hard to beat. Western Union fees are obscene, PayPal isn't that far behind ($60 of fees in a $2000 transaction is nuts), and the credit card companies are just as bad for those who have their own payment gateways.

It's used for far more than Silk Road at this point. But, centralized exchanges in a decentralized currency are still a bad idea.

Giving it some thought.( and I haven't totally finished hashing out the ideas yet. )Bitcoins are sort of the currency of the "occupiers", calculated to prevent the 1% from playing all the tricks they occupiers think[1] they play with money.

A fundamental flaw in all the occupiers anti 1% logic is that if you were to eliminate the 1% the next 0.99% would become the next 1%.

It seems to me that if Bitcoins become trusted enough for major transactions, then there will be a buble in Bitcoins and a crash more nasty then 2008, but leaving 1% of the occupiers rich.

Or as the Who put it:"Meet the new boss, same as the old boss."

[1] Some of the time they have a point other times it's tin foil hat time.

Giving it some thought.( and I haven't totally finished hashing out the ideas yet. )Bitcoins are sort of the currency of the "occupiers", calculated to prevent the 1% from playing all the tricks they occupiers think[1] they play with money.

A fundamental flaw in all the occupiers anti 1% logic is that if you were to eliminate the 1% the next 0.99% would become the next 1%.

It seems to me that if Bitcoins become trusted enough for major transactions, then there will be a buble in Bitcoins and a crash more nasty then 2008, but leaving 1% of the occupiers rich.

Or as the Who put it:"Meet the new boss, same as the old boss."

[1] Some of the time they have a point other times it's tin foil hat time.

As someone who was an occupier, but is a skeptic of Bitcoin I find that hard to believe. Most of the occupiers I knew wanted more government intervention in markets, not less.

The fundamental flaw in your logic is that you're making broad inaccurate generalizations about a diverse group of people. Also, increasing equity is not the same as taking away all of rich people's money or whatever communist bogeyman you've imagined. You could take away 80% of the top 5% wealth, and it would still be the exact same 5% on the top.

Enter the problem with Bitcoin. It's not real, it's not backed by any government or police force, and it can't be recouped through charge backs.

It's only useful, as a currency, for criminals among criminals.

I don't really agree with that statement, but I believe one of the problems is that it's not looked upon as real currency.

I always thought, potentially ignorantly, that something was only worth what people said it was worth. Wasn't currency, gold or otherwise, implemented to give a benchmark on which we could barter?

All currencies are functions of trust. In the case of gold, we trust it because its has value as a precious metal that has been the same for several millenia. As in no matter what it'll always be worth a minimum value as a precious metal. Its partly true to say its only worth what someone says its worth, because in the end, there always needs something to compare it to or otherwise you're just bartering with scraps of paper which you'll have to barter for something else you want. Which is where the gold standard came in. That scrap of paper was once always worth X amount of gold, no matter what. It was designed to give people initial trust to use the currency and to switch from whatever other currency they were using. If you didn't then you could always go to a bank and request the value in gold. Now that's pretty unfeasible. Also the govt realized a bank run and crash was a possibility and some other negative economical factors, so they removed the gold standard. Now the USD is so widely accepted, there isn't much of a need for that level of trust and the value of the currency is now just dependent on the state of the US nation and its political, foreign, and economical affairs like all other fiat govt currencies. But that value is really only relative, because ALL of the worlds financial system hold the USD as the base unit of their currencies worth. 1 US Dollar is still 1 US dollar. What that dollar can buy you is still up to merchants. But the USD does provide a high trade value versus other currencies and its pretty stable, which is so many have adopted it as an official currency.

The stability is the primary reason people don't see Bitcoin as a currency. They look to the Dollar and go why would I want to put my money in Bitcoin? Why is this important? Because people like to horde. they want to be able to put something away for N years and come back to it and have it be worth AT LEAST the same amount as it as back then. People don't like to think about the fact that their currency changes value. So instead they prefer call Bitcoin a commodity or stock. Which is true. Its just also a currency as it provides a medium of exchange.

Paper currency, bitcoins, commodities, barter are all just a medium of exchange. Some mediums of exchange are more convenient than others.

You (vendor, person) have something I want so we use a common medium of exchange so that I can get what I want and you can get paid. Payment could be in different forms - perhaps paper currency (dollars, euros, etc.) are used or perhaps I provide some labor and you provide labor (barter) is used or perhaps bitcoins are used as long as the parties to the transaction agree to the terms of the exchange that is what matters.

The medium of exchange has an ascribed value. One dollar will buy about 1/3 a gallon of gas or one vitamin water, etc. As long as people have confidence in the medium of exchange it is a useful and convenient tool. What happens when people's confidence in the medium of exchange wanes? Well we have seen what happened in Germany in the 1920's and Argentina in the 1980's and what soon will happen to the US sometime in the 2000's.

The history of countries debasing their currency (as is happening in the US right now, QE-Infinity where the Fed is adding 85 Billion per month to the currency supply) is consistent. No country has been able to print paper currency forever without eventually having very bad effects. Additionally the World is currently moving away from the US Dollar as the reserve currency to a basket of currencies. Instead of having to convert to US dollars to buy oil, agreements are in place between many countries that bypasses that and trades directly in the currency of those countries.

Eventually that will come home to roost in the US. Many have estimated that the US standard of living will drop by about 25% once the dollar is no longer the World's reserve currency (See: http://www.cnbc.com/id/41887217/US_Stan ... kness_Zell ). It is happening right now and nothing can stop it - it is too late.

"Thatcher formed a government on 4 May 1979, with a mandate to reverse the UK's economic decline and to reduce the role of the state in the economy. Thatcher was incensed by one contemporary view within the Civil Service that its job was to manage the UK's decline from the days of Empire, and wanted the country to punch above its weight in international affairs."

"The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur."

It is coming to the United States, it will happen in the near future...

Currency, even gold, has no intrinsic value. It's merely a score keeper to make trading goods/services easier. The more trust people have in a currency the more reliable its score keeping ability. Trust is built over time (and can be lost exceedingly fast.) Trust in a currency is built on many things: is it protected against counterfeiting, is it fairly stable, will it be around in X years, are there a lot people that will accept its face value, can i easily change it to something else if I wanted to.

Bitcoin has years to go before building the trust that even some poor currencies have, mostly just because it hasn't existed that long so it's hard to judge its trustworthiness. But it also has problems in stability of value, and acceptance around the world. Additionally the number of coins available is small enough that speculation is occuring that can involve significant percentages of total availabitlity. There is at least one person claiming to own 1% of all bit coins, a few others owning similar percentages and control of bitcoin value is pretty much in their hands. Additionally there seems to be a huge problem in exchange thefts and malware thefts. How can I trust something where my potential of losing it seems so high. At least when a bank is robbed the FDIC covers my deposits up to a certain point. Same in bank failures.

One of big stabilizing factors of US dollars is that we've been around a couple of hundred years, despite current wrangling over debt sizes, it isn't like to cause the entire country to crash anytime soon, the military backing the gov't that backs the dollars is large enough to also ensure the country won't fall to invasion any time soon.

Bitcoin has no gov't or country backing it. This means that the fall of a single country, or several countries even, shouldn't affect it's value. But as we've not had a currency of this type in a very long time (even gold was frequently backed by countries that would guarantee their coins were of a certain purity, you had to trust that gov't to accept those coins) people won't trust it until the lack of a country backing it is seen as a real plus. That takes a long time.

Enter the problem with Bitcoin. It's not real, it's not backed by any government or police force, and it can't be recouped through charge backs. It's only useful, as a currency, for criminals among criminals.

* What backs gold, or commodities like wheat, iron ore, or oil? They don't need a government to back them, their innate utility makes people willing to trade them for other things. Similarly the innate utility of bitcoin is why people value it.

They're not very clear about why their bank is closing down their account - is it because the untraceable nature of Bitcoins seems to theoretically make it a prime target for money laundering? If so, why not just open up an HSBC account?

Paper currency, bitcoins, commodities, barter are all just a medium of exchange. Some mediums of exchange are more convenient than others.

You (vendor, person) have something I want so we use a common medium of exchange so that I can get what I want and you can get paid. Payment could be in different forms - perhaps paper currency (dollars, euros, etc.) are used or perhaps I provide some labor and you provide labor (barter) is used or perhaps bitcoins are used as long as the parties to the transaction agree to the terms of the exchange that is what matters.

The medium of exchange has an ascribed value. One dollar will buy about 1/3 a gallon of gas or one vitamin water, etc. As long as people have confidence in the medium of exchange it is a useful and convenient tool. What happens when people's confidence in the medium of exchange wanes? Well we have seen what happened in Germany in the 1920's and Argentina in the 1980's and what soon will happen to the US sometime in the 2000's.

The history of countries debasing their currency (as is happening in the US right now, QE-Infinity where the Fed is adding 85 Billion per month to the currency supply) is consistent. No country has been able to print paper currency forever without eventually having very bad effects. Additionally the World is currently moving away from the US Dollar as the reserve currency to a basket of currencies. Instead of having to convert to US dollars to buy oil, agreements are in place between many countries that bypasses that and trades directly in the currency of those countries.

Eventually that will come home to roost in the US. Many have estimated that the US standard of living will drop by about 25% once the dollar is no longer the World's reserve currency (See: http://www.cnbc.com/id/41887217/US_Stan ... kness_Zell ). It is happening right now and nothing can stop it - it is too late.

"Thatcher formed a government on 4 May 1979, with a mandate to reverse the UK's economic decline and to reduce the role of the state in the economy. Thatcher was incensed by one contemporary view within the Civil Service that its job was to manage the UK's decline from the days of Empire, and wanted the country to punch above its weight in international affairs."

"The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur."

It is coming to the United States, it will happen in the near future...

Good thing the fed isn't printing paper currency then? Is it really so hard to believe that different times require different fiscal/monetary policies, and that maybe it's a good idea to spend more in a severe Recession?

Enter the problem with Bitcoin. It's not real, it's not backed by any government or police force, and it can't be recouped through charge backs. It's only useful, as a currency, for criminals among criminals.

* What backs gold, or commodities like wheat, iron ore, or oil? They don't need a government to back them, their innate utility makes people willing to trade them for other things. Similarly the innate utility of bitcoin is why people value it.

You can turn gold into computer chips, you can eat wheat, you can turn iron into monopoly pieces (and other stuff I guess), and oil into energy. You can even burn paper money as a last resort. Bitcoins can be used for absolutely nothing but money, which means their innate utility is far lower than other commodities.

If the last bit about $2m of bitcoins being stolen irretrievably doesn't make the case for traditional payment processors then I don't know what does. No one cares about fraud until it happens to them and it's nice when Visa / Mastercard / your bank can go "nope, didn't happen!"

Enter the problem with Bitcoin. It's not real, it's not backed by any government or police force, and it can't be recouped through charge backs.

It's only useful, as a currency, for criminals among criminals.

I don't really agree with that statement, but I believe one of the problems is that it's not looked upon as real currency.

I always thought, potentially ignorantly, that something was only worth what people said it was worth. Wasn't currency, gold or otherwise, implemented to give a benchmark on which we could barter?

All currencies are functions of trust. In the case of gold, we trust it because its has value as a precious metal that has been the same for several millenia. As in no matter what it'll always be worth a minimum value as a precious metal. Its partly true to say its only worth what someone says its worth, because in the end, there always needs something to compare it to or otherwise you're just bartering with scraps of paper which you'll have to barter for something else you want. Which is where the gold standard came in. That scrap of paper was once always worth X amount of gold, no matter what. It was designed to give people initial trust to use the currency and to switch from whatever other currency they were using. If you didn't then you could always go to a bank and request the value in gold. Now that's pretty unfeasible. Also the govt realized a bank run and crash was a possibility and some other negative economical factors, so they removed the gold standard. Now the USD is so widely accepted, there isn't much of a need for that level of trust and the value of the currency is now just dependent on the state of the US nation and its political, foreign, and economical affairs like all other fiat govt currencies. But that value is really only relative, because ALL of the worlds financial system hold the USD as the base unit of their currencies worth. 1 US Dollar is still 1 US dollar. What that dollar can buy you is still up to merchants. But the USD does provide a high trade value versus other currencies and its pretty stable, which is so many have adopted it as an official currency.

The stability is the primary reason people don't see Bitcoin as a currency. They look to the Dollar and go why would I want to put my money in Bitcoin? Why is this important? Because people like to horde. they want to be able to put something away for N years and come back to it and have it be worth AT LEAST the same amount as it as back then. People don't like to think about the fact that their currency changes value. So instead they prefer call Bitcoin a commodity or stock. Which is true. Its just also a currency as it provides a medium of exchange.

1. President Nixon took the United States off of the Gold system in 1971 due to suspension of the Bretton Woods system (see: http://en.wikipedia.org/wiki/Bretton_Woods_system ). Basically the US Gold reserves were being cleaned out by the World at $35 per ounce so Nixon closed the Gold trading window.

"Floating-rate system during 1968–1972By 1968, the attempt to defend the dollar at a fixed peg of $35/ounce, the policy of the Eisenhower, Kennedy and Johnson administrations, had become increasingly untenable. Gold outflows from the U.S. accelerated, and despite gaining assurances from Germany and other nations to hold gold, the unbalanced fiscal spending of the Johnson administration had transformed the dollar shortage of the 1940s and 1950s into a dollar glut by the 1960s. In 1967, the IMF agreed in Rio de Janeiro to replace the tranche division set up in 1946. Special drawing rights (SDRs) were set as equal to one U.S. dollar, but were not usable for transactions other than between banks and the IMF. Nations were required to accept holding SDRs equal to three times their allotment, and interest would be charged, or credited, to each nation based on their SDR holding. The original interest rate was 1.5%.

The intent of the SDR system was to prevent nations from buying pegged gold and selling it at the higher free market price, and give nations a reason to hold dollars by crediting interest, at the same time setting a clear limit to the amount of dollars that could be held. The essential conflict was that the American role as military defender of the capitalist world's economic system was recognized, but not given a specific monetary value. In effect, other nations "purchased" American defense policy by taking a loss in holding dollars. They were only willing to do this as long as they supported U.S. military policy. Because of the Vietnam War and other unpopular actions, the pro-U.S. consensus began to evaporate. The SDR agreement, in effect, monetized the value of this relationship, but did not create a market for it.

The use of SDRs as paper gold seemed to offer a way to balance the system, turning the IMF, rather than the U.S., into the world's central banker. The U.S. tightened controls over foreign investment and currency, including mandatory investment controls in 1968. In 1970, U.S. President Richard Nixon lifted import quotas on oil in an attempt to reduce energy costs; instead, however, this exacerbated dollar flight, and created pressure from petro-dollars. Still, the U.S. continued to draw down reserves. In 1971 it had a reserve deficit of $56 billion; as well, it had depleted most of its non-gold reserves and had only 22% gold coverage of foreign reserves. In short, the dollar was tremendously overvalued with respect to gold.

Nixon ShockBy the early 1970s, as the Vietnam War accelerated inflation, the United States as a whole began running a trade deficit. The crucial turning point was 1970, which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the view of neoclassical economists, represented the point where holders of the dollar had lost faith in the ability of the U.S. to cut budget and trade deficits.

In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on 15 August 1971, Nixon issued Executive Order 11615 pursuant to the Economic Stabilization Act of 1970, unilaterally imposing 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window", making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the Nixon Shock."

2. It was illegal in the United States to won Gold until fairly recently (See: http://en.wikipedia.org/wiki/Executive_Order_6102) FDR basically change US contract law and voided gold clauses in then current contracts "The Gold Reserve Act of 1934 made gold clauses unenforceable..." and made private ownership of Gold a criminal offense.

"The Gold Reserve Act of 1934 made gold clauses unenforceable, and changed the value of the dollar in gold from $20.67 to $35 per ounce. This price remained in effect until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus abandoning the gold standard for foreign exchange (see Nixon Shock).

The private ownership of gold certificates was legalized in 1964. They can be openly owned by collectors but are not redeemable in gold. The limitation on gold ownership in the U.S. was repealed after President Gerald Ford signed a bill to "permit United States citizens to purchase, hold, sell, or otherwise deal with gold in the United States or abroad" with an act of Congress codified in Pub.L. 93–373,[7][8][9] which went into effect December 31, 1974. P.L. 93-373 did not repeal the Gold Repeal Joint Resolution,[10][11] which made unlawful any contracts that specified payment in a fixed amount of money as gold or a fixed amount of gold. That is, contracts remained unenforceable if they used gold monetarily rather than as a commodity of trade. However, Act of Oct. 28, 1977, Pub. L. No. 95-147, § 4(c), 91 Stat. 1227, 1229 (originally codified at 31 U.S.C. § 463 note, recodified as amended at 31 U.S.C. § 5118(d)(2)) amended the 1933 Joint Resolution and made it clear that parties could again include so-called gold clauses in contracts formed after 1977."

The surcharge was dropped in December 1971 as part of a general revaluation of major currencies, which were henceforth allowed 2.25% devaluations from the agreed exchange rate. But even the more flexible official rates could not be defended against the speculators. By March 1976, all the major currencies were floating—in other words, exchange rates were no longer the principal method used by governments to administer monetary policy."

The interesting question is what will happen under President Obama? Things are going to get "interesting" in the United States!

Paper currency, bitcoins, commodities, barter are all just a medium of exchange. Some mediums of exchange are more convenient than others.

You (vendor, person) have something I want so we use a common medium of exchange so that I can get what I want and you can get paid. Payment could be in different forms - perhaps paper currency (dollars, euros, etc.) are used or perhaps I provide some labor and you provide labor (barter) is used or perhaps bitcoins are used as long as the parties to the transaction agree to the terms of the exchange that is what matters.

The medium of exchange has an ascribed value. One dollar will buy about 1/3 a gallon of gas or one vitamin water, etc. As long as people have confidence in the medium of exchange it is a useful and convenient tool. What happens when people's confidence in the medium of exchange wanes? Well we have seen what happened in Germany in the 1920's and Argentina in the 1980's and what soon will happen to the US sometime in the 2000's.

The history of countries debasing their currency (as is happening in the US right now, QE-Infinity where the Fed is adding 85 Billion per month to the currency supply) is consistent. No country has been able to print paper currency forever without eventually having very bad effects. Additionally the World is currently moving away from the US Dollar as the reserve currency to a basket of currencies. Instead of having to convert to US dollars to buy oil, agreements are in place between many countries that bypasses that and trades directly in the currency of those countries.

Eventually that will come home to roost in the US. Many have estimated that the US standard of living will drop by about 25% once the dollar is no longer the World's reserve currency (See: http://www.cnbc.com/id/41887217/US_Stan ... kness_Zell ). It is happening right now and nothing can stop it - it is too late.

"Thatcher formed a government on 4 May 1979, with a mandate to reverse the UK's economic decline and to reduce the role of the state in the economy. Thatcher was incensed by one contemporary view within the Civil Service that its job was to manage the UK's decline from the days of Empire, and wanted the country to punch above its weight in international affairs."

"The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur."

It is coming to the United States, it will happen in the near future...

Good thing the fed isn't printing paper currency then? Is it really so hard to believe that different times require different fiscal/monetary policies, and that maybe it's a good idea to spend more in a severe Recession?

No it is not hard to believe at all.

1. What do you think the effects of the Feds "printing" of currency will be over the long run?

2. Has any country been able to indefinitely debase its currency without very bad economic effects?

3. Is the Feds current "printing" of 85 Billion per month (over a Trillion per year) and buying US treasuries not a house of cards like the Mortgage CDO and other instruments? Can the "printing" go on forever?

All I can say is that we are bound for some interesting times in the US. Due to the normalcy bias (See: http://en.wikipedia.org/wiki/Normalcy_bias ) many in the US cannot see that some very bad things are coming and that it has already tipped too far to suspend the effects of the cuases already in motion.

If bitcoin becomes as successful as supporters hope for, wouldn't competing schemes spring up? (Like a Facebook that overtakes MySpace, a Google that beats Yahoo etc.) I think it is bound to happen for various reasons, either monetary ("there is profit to be made") or non-monetary reasons ("I don't like the way it is managed" -- like LibreOffice forking from OpenOffice, Amazon forking Android for its own use etc.) So I don't believe the premise of "only a fixed amount of bitcoin can exist, it is a deflationary money so it will increase in value over time".

As you can see from gold prices, it is not a particulary good medium for holding value / storing money. The gold market is controlled by speculators. 10 years ago gold was worth less than $500/oz, ~2 years ago it was above $1800/oz, and now it is near $1400/oz. It is much more stable than Bitcoins, but it sure isn't a reliable investment or stable place to hold money.

Enter the problem with Bitcoin. It's not real, it's not backed by any government or police force, and it can't be recouped through charge backs.

It's only useful, as a currency, for criminals among criminals.

I don't really agree with that statement, but I believe one of the problems is that it's not looked upon as real currency.

I always thought, potentially ignorantly, that something was only worth what people said it was worth. Wasn't currency, gold or otherwise, implemented to give a benchmark on which we could barter?

Well, the problem with BitCoin is it keeps getting compared / converted to cash. How much are the bitcoins worth now? ... and now?... and now?

The idea of BitCoins was to have a trade medium that disjointed from cash, letting folks barter and trade w/o having to transact cash tender regulated by other entities. But, folks started trading it for real cash.

As such ... all of BitCoin's "value" seems to be regulated by how much cash it's worth now, just like gold, which is a pity. Becasue now it's just become a back-seat currency again.

If bitcoin becomes as successful as supporters hope for, wouldn't competing schemes spring up? (Like a Facebook that overtakes MySpace, a Google that beats Yahoo etc.) I think it is bound to happen for various reasons, either monetary ("there is profit to be made") or non-monetary reasons ("I don't like the way it is managed" -- like LibreOffice forking from OpenOffice, Amazon forking Android for its own use etc.) So I don't believe the premise of "only a fixed amount of bitcoin can exist, it is a deflationary money so it will increase in value over time".

I think your point can maybe get compared to mmorpg economies.

EG: world of warcraft and everquest both have their own economies, and both have "miners" that do nothing but gather up tender to sell to others for real world money or whatever. Unfortunately, both (everquest being a good example) have an endless economy ... there is no set amount of tender in the world. So, the money will only keep decreasing in value. I'm also reminded of Stones of Jordon in Diablo II ... folks were duping and looting so much, that the market got flooded; there was an endless supply of items to barter and currency as long as folks kept working for it. This eventually dilutes the eocnomy to where even one of the most expensive items became a "standard" for bartering.

However, folks could decide to exchange currency between games if they had characters in both games, felt a value in it, etc. So, ok, two currencies are going, folks find value in swapping them for whatever purpose. No big deal. The market and consumers / users ultimately regulate it.

But, bitcoin has in place a limiter, which means only X will ever be in existence. That prevents inflation right there. If other companies start their own virtual currency (let's just say those stupid "gems" or whatever folks buy on smartphones game become popular), folks can decide to exchange those with each other, too.

In both cases, though, there's a limiter, either work or wealth. For bitcoin, there's only so many to mine; eventually those will get mined out and the only way to get some bc will be to buy them for some going rate. In other games, people pay cash to get their stupid gems or smurf berries or whatever. So, the limiter there is how much cash do they get paid in real life which would allow them to convert to a virtual currency for whatever reason. The game company can offer an unlimited amount of smurfberries, but since they cost $0.0x / berry, you can only ever buy as many as you have cash available.

So, pre-existing currencies can help limit things. If folks can just "work" for an unlimited amount of a currency, though, like in almost every rpg ever made... that won't fly.

edit:

I guess the better answer is ... a competing currency is only worth something if there's a "value added" service that makes it worth using. Bitcoins are useful b/c they are a finite resource that can be used for anonymous transactions.

A competing virtual currency can spring up, but if there's no incentive to use it... ie: no "killer app" reason to use it, what's the point?

Virtual currencies are all around us, too. EG: you go to a fair, they usually have you buy those stupid tickets in order to purchase food and beer. In a way, there's "value", b/c a) you HAVE to use those tickets to make those kinds of purchases at the fair (so, there's an incentive to buy them), b) the fair loves it, b/c it disassociates the actual cash value of things, so folks can't easily tell that beer they just bought was $5.